In a surprise twist to an otherwise bullish year, investors dumped the shares of technology stocks last quarter. Among the names damaged by this tech wreck was cloud-communications and software-security firm Twilio (NYSE:TWLO) as TWLO stock sank to new, short-term lows.
Really, though, the trouble for Twilio started in the summer as its share price fell below a hard resistance level. If investors learned anything last year, they realized that market darlings can become toxic assets in the blink of an eye.
But is TWLO stock really toxic? Just maybe, it’s a bargain, as Twilio’s financial stats aren’t terrible and, in the wake of their pullback, the shares should now be more attractive to value hunters.
At the very least, a couple of prominent Wall Street experts are predicting that TWLO stock will rally. And with the company’s new foray into business-building, Twilio could actually turn out to be the comeback kid of 2022.
A Closer Look at TWLO Stock
Soon after the onset of Covid-19 in early 2020, cloud-focused stocks went on a tear. As a result, TWLO stock rallied from $72 in March 2020 to $457.30 in February 2021.
However, the latter price turned out to be a stubborn resistance level as buyers pushed Twilio’s shares up to the $400+ level several more times during the year before getting harshly rejected.
On the final trading session of 2021, TWLO stock closed at $263.34. Perhaps the decline was healthy and necessary, as the stock probably flew too high and too quickly in 2020.
Going forward, $300 will be a key level for the stock, but $400 is the established battle zone. Keep your eye on the daily trading volumes, as low-volume rallies could signal head fakes similar to those we observed in 2021.
Concerns Are Overly Represented
It’s conceivable that the pullback by TWLO stock was severely overdone. After all, Twilio’s third-quarter financial results were impressive. They featured:
- 63% non-GAAP year-over-year (YoY) gross profit growth.
- 65% total YoY revenue growth.
- 38% YoY increase in organic revenue.
- Revenue dollar-based net expansion of 131%.
- Over 250,000 active customer accounts as of Sept. 30, 2021.
The future also looks bright, as Twilio expects its Q4 revenue to come in at $760 million to $770 million.
Undoubtedly with those stats in mind, analysts at Goldman Sachs issued an ambitious price target of $350 for TWLO stock.
Even more optimistic is Barclays analyst Ryan MacWilliams, who placed a $375 price target on Twilio’s shares
In MacWilliams’s view, the stock has approached a “more reasonable” valuation compared with its faster-growth peers since Twilio’s Q3 earnings report.
I tend to concur with that assessment. Moreover, MacWilliams believes that investors’ concerns about Twilio’s Q4 projections are “overly represented in [the] shares.”
Championing the Next Generation
While Twilio is primarily known as a cloud communications platform, the company is taking steps to drastically expand its business model.
Specifically, Twilio announced the launch of Twilio Ventures and its new $50 million fund. That fund is “designed to champion the next generation of builders that are building the future of customer engagement.”
It might be difficult to think of Twilio as owning a venture-capital firm, but that seems to be the essence of Twilio Ventures.
For Twilio Ventures, a key target area will be “ecosystem” investments. These are intended to “promote the success of developers, partners and solutions within the Twilio ecosystem to create paths for every type of builder.”
There will also be “frontier” investments. Evidently, those deals will focus on developing “innovative solutions for delivering better customer experiences and engagement.”
As you can see, Twilio Ventures is being described with a lot of vague language. Really, only time will tell whether Twilio’s expansion into tech-centered angel investing will provide significant value to its shareholders.
The Bottom Line
In 2022, optimistic shareholders can hope that TWLO stock will return to $350, $375 and even the stubbornly resistant $400 level.
Fortunately, a rally by the shares should be justified as Twilio’s financials are strong, and the company is preparing to reveal solid yet realistic Q4 revenue.
Additionally, Twilio appears to be evolving into a firm that invests in high-conviction businesses. If you’re on board with that strategy, then the shares belong in your portfolio of cloud stocks.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.